Two top housing economists provided some encouraging news about the housing market during an economic session at the NAR Midyear Legislative Meetings and Expo this week. Both NAR chief economist Lawrence Yun and Moody’s Economy.com chief economist Mark Zandi agree that job creation is the key to a sustained economic and housing recovery, with job creation expected later this year, but they differed on their views about how foreclosures will impact home prices.
Yun says the homebuyer tax credit added 1 million buyers, reduced inventory by 1 million units and reduced the housing supply by several months, which corresponded to a positive impact on home prices of 5 percent to 8 percent. “Stabilizing home prices will limit future foreclosures,” says Yun. He predicts slightly stronger demand for housing and a fairly even level of foreclosures entering the pipeline this year before easing in 2011. “We expect distressed sales to account for 30 to 40 percent of transactions for the remainder of this year,” he says.
Zandi also forecasts improved demand for housing, but expects foreclosures to rise later this year before easing in 2011. He also says home prices may weaken further. “There will be no real price growth in 2010 or 2011. Whether home prices weaken is unclear, but it will take two more years to work off excess housing inventory at the current sales pace. Of course, if demand picks up, it would take less time for prices to rise,” Zandi says.
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Facing the possibility of foreclosure, California homeowners may be hit with more than just losing their homes. Due to a loophole in state law, they also can be sued by their lender. To prevent this, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is sponsoring Senate Bill 1178 by State Sen. Ellen Corbett (D-San Leandro), which will extend anti-deficiency protection for consumers who have refinanced their original mortgage loans and now are facing foreclosure.
KEEP THIS IN MIND
• Currently, if a homeowner defaults on a mortgage used to purchase his or her home — known as a “purchase money mortgage” — the homeowner’s liability on the mortgage is limited to the property itself. Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate.
• Californians who refinance a property currently do not have protection if they default on a mortgage greater than the property’s value. Called a “deficiency” liability, under current California law, the lender can sue the former homeowner for the amount of the deficiency even after taking back the property.
• Recent years of low interest rates and aggressive marketing campaigns by lenders have induced tens of thousands to refinance mortgages. Few homeowners realized that by refinancing their mortgage, they were forfeiting their protections and now are personally liable.
• C.A.R. created a video detailing Senate Bill 1178. The video can be viewed here.
from CAR’s Market Matters e-mail update.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March but not closed, rose 5.3 percent from the previous month and was 21.1 percent higher than March 2009, NAR reports. This follows an 8.3 percent monthly increase in February.
NAR chief economist Lawrence Yun says the rise in pending home sales is a result of better housing affordability and the homebuyer tax credit, but he expects sales to decline in the months ahead following the expiration of the tax credit. “Clearly the homebuyer tax credit has helped stabilize the market. In the months immediately following the expiration of the tax credit, we expect measurably lower sales. Later in the second half of the year and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace and from a return of buyer demand as they see home values stabilizing,” Yun says.
The index rose in three of the four regions from February to March, and all four regions year-over-year. In the Midwest, it increased 1.2 percent in March from the previous month and was 18.5 percent higher than a year ago. In the South, the index jumped 12.7 percent in March and was 28.3 percent higher than March 2009. Pending sales in the West rose 1.9 percent during the month and were 8.8 percent above a year ago. But pending sales in the Northeast declined 3.3 percent in March, although they were 27.2 percent higher than a year ago.
Housing starts rose to a seasonally adjusted annual rate of 626,000 in March, 1.6 percent higher than the 616,000 estimated in February and 20.2 percent higher than the 521,000 estimated a year ago, according to the latest figures compiled by the U.S. Commerce Department.
Permits for new residential construction rose 7.5 percent in March to 685,000 from 637,000 in February, and they were 34.1 percent higher than the March 2009 estimate of 511,000.
Builder confidence rose four points this month to reach its highest level since September 2009, spurred by increased activity from buyers, according to the latest NAHB/Wells Fargo Housing Market Index. “An expected surge in buyer activity leading up to the expiration of the homebuyer tax credits and a gradually improving economy helped to brighten builders’ view of the marketplace in April,” says NAHB chief economist David Crowe.
However, builders are cautious about the next six months as several issues could continue to drag on the housing market, such as credit shortages, high inventory of foreclosures and concerns about the job market.
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